Reliance Capital Blog

Reliance Capital, India's Berkshire Hathaway

Thursday, February 04, 2010

Reliance Mutual Fund is one of the fastest growing fund houses in the industry

By For a common man interested in the meteoric rise of the Indian stock market, there is no better financial instrument than a mutual fund to get all the advantages of investing in the markets directly at a lower cost, without having to worry about the expertise required to invest in stocks.

A mutual fund is a trust that pools the savings of investors who share a common financial goal. The money thus collected is then invested in shares, debentures and other such capital market instruments.

Mutual fund schemes cater to needs like financial position, risk tolerance and return expectations of investors. The income earned and the capital appreciation realized is then shared with the investors in the proportion of units owned by them.

HOW IT ALL BEGAN

The mutual fund industry as we know today is a little over a decade old in India. However, the inception of mutual funds in India began with the setting up of the Unit Trust of India by an Act of Parliament in 1963. This was the single mutual fund till the year 1987, when other public sector mutual funds such as SBI Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund and Canbank Mutual Fund entered the market.

Insurance players such as Life Insurance Corporation of India (LIC) and General Insurance Company (GIC) also ventured into the asset management space in the early 1990s. By the end of 1993 the mutual fund had Rs 47,000 crore as assets under management.

It was in 1993 that a new era in the mutual fund industry started with the entry of private sector funds. The erstwhile Kothari Pioneer, now merged with Franklin Templeton, was the first private sector mutual fund registered in July 1993.

As of today there are around 37 asset management companies that are yet to penetrate the market as would be ideally desirable. In India, the mutual fund industry manages a total corpus of Rs 6 lakh crore with a penetration of only about 3% as compared to 50% to 60% in the developed countries.

A LEADER IS BORN

Reliance Mutual Fund is the largest player among asset management companies that is making an attempt to direct a portion of India’s large domestic savings into the fund industry. It is the first asset management company to cross the Rs 1 lakh crore-mark in assets under management and has 72 lakh customers out of the total 3 crore customers in the entire MF industry in India. Besides, it has the distinction of being the most trusted asset management company for three years back to back by AC Neilson.

Reliance Mutual Fund has grown to be the leader in the mutual fund industry in a short span of less than five years, beating established players in the field. With Assets Under Management (AUM) of 1,18,251 crore, the fund house is a clear leader with a 20% lead over its nearest competition.

With more than 90% of the applicants having less than Rs 50,000 worth of investments and over 1 million SIP investors, Reliance Mutual Fund proves that it is truly a retail-focused fund house.

The mutual fund is the fastest growing mutual fund in the country and offers investors a well-rounded portfolio of products to meet varying requirements of customers. The mutual fund is present in 118 cities across India.

THE GROWTH PATH

The fund house has been able to earn the repute of being one of the fastest growing fund houses in the industry owing to its aggressive strategies, especially in its flagship fund Reliance Vision Fund and is offering five year returns of 25.14% as compared to the category average of 21.87%.

Another category outperformer in the equity diversified fund from the house of Reliance Mutual Fund is Reliance Growth Fund that has given five year returns of 30.17% against the category average of 25%.

The fund house is also a leader in sector-specific funds and is running five sector funds - Reliance Banking Fund, Reliance Diversified Power Sector Fund, Reliance Pharma Fund, Reliance Media and Entertainment Fund and the recently launched Reliance Infrastructure Fund - the highest number of sectoral funds in the industry. Also, Reliance Diversified Power Sector Fund (with an NAV of Rs 78) is the best performing fund among the top 10 funds in the five year category having yielded returns of 44.04% over the last five years.

THE RISE AFTER THE FALL

However, the recession left an indelible mark on the fund house as it saw its profits fall by 16% to Rs 126 crore in March ’09 as compared to Rs 150 crore in March ’08, the fund house remained constant in its strategies and was able to use cash as a hedge during the financial crisis. In some equity schemes, the cash proportion was as high as 15% to 18% as compared to 3% to 5% cash during normal times.

According to Reliance Capital Asset Management Chief Executive Officer Sundeep Sikka, who explained in a media interview at the end of the crisis that no fund house could have possibly insulated itself from a crisis of such mammoth proportion.

“Of course there were effects, with the dramatic fall in the markets, but we have remained consistent in our beliefs. India is an amazing domestic consumption story. We still have 6% annual growth. If this 6% growth was happening in a Western nation, they would be worried about the economy overheating!” Sikka explained.

The fund house thus remains consistent in its strategy on investing in the domestic consumption story though the fund managers have always followed a stock-specific investment strategy. The strategy is obviously paying off as the fund house bagged two prestigious awards of the fund industry in the fag end of calendar year 2009.

The fund house recently won the most prestigious Asia Risk awards for being the first Indian asset management company to implement an enterprise-wide risk management system.

The MSCI BarraOne risk model was rolled out in late 2007 and has been fully integrated for use on 21 equity funds during the year 2008. Reliance Asset Management Company has been one of the pioneers in managing operational risks in India and has implemented a system-wide operational risk framework.

The fund house had achieved the distinction of emerging as the best fund house with the most number of CPR 1 ranks {CRISIL’s Composite Performance Rankings (CRISL~CPR) for the period July-September ’09} repeating its first quarter performance.

“Our mission is to bring Indian asset managers to a global level through increased penetration into the retail market, which comes from simple and transparent products.” said Sikka. While Reliance Capital Fund Management is already the biggest asset manager in India, its potential for further growth looks substantial.

Reliance Asset Management Company has a vision of being a leading player in the mutual fund business and has achieved significant success and visibility in the market. At Reliance Capital Asset Management Ltd, the implementation and observance of ethical processes and policies have helped the AMC in standing up to the scrutiny of our domestic and international investors. Appreciating his team for getting the company to the global platform, Sikka said the company’s aim is to fulfill the financial dreams of its investors.

The fund house has always been a leader in making innovative moves and as its latest initiative is looking forward to offering more plans and schemes on the recently launched trading platform for mutual funds on the stock exchanges.

The new platforms will enable investors to buy and sell mutual fund products through over two lakh trading terminals of stock exchanges in the same way as equity shares are traded through brokers.

“The two platforms will help our investors reduce their administrative tasks as this will be taken care of by our exchanges,” Sikka said.

Rel Cap eyes Malaysian govt fund biz

Reliance Capital Asset Management Company is negotiating with Malaysia to manage up to $5 billion (Rs 23,000 crore) of public andgovernment funds, including money that is part of the national pension fund, persons aware of the development said.

Malaysia is also in talks with other global fund managers for the deal and the Anil Ambanirun company expects to win a mandate to manage around half the $5 billion that the Southeast Asian nation’s government wants private asset managers to handle.

Investment arms called government-linked investment companies (GLICs) manage the funds now and also own stakes in a number of top Malaysian firms. Such companies, called government-linked companies (GLCs), include Telekom Malaysia, automaker Proton and Malaysia Airlines. Surplus cash with some of the GLCs will also be managed by private fund managers.

“He (Mr Ambani) is looking to manage some of Malaysia’s portfolio assets. Also, some of our GLCs,” Malaysian Prime Minister Najib Razak told ET after a meeting with Mr Ambani.

Reliance Money plans to sweep market with new product

Reliance Money, distribution and broking brand of Reliance Securities Ltd (RSL), on Tuesday launched a new product for customers,allowing unlimited equity trading for a fee of Rs.6,000 for three months. It plans to sweep the market with this product.

"There are around one million potential traders in the country and we are looking at sweeping the market," Reliance Securities executive director Vikrant Gugnani told reporters.

The product would help aggressive investors and regular traders to trade without brokerage charges for three months.

The product, priced at Rs.6,000 for three months, offers unlimited delivery trading and margin trading turnover and is available to new customers.

"This product is aimed to provide huge price advantage - up to 25-50 percent of brokerage - to aggressive investors and traders who easily end up spending much more on other platforms," Reliance Securities chief executive officer Kapil Bali said.

RSL has 949,000 retail broking clients across the country. RSL is a group company of Anil Ambani's Reliance Capital Ltd.

Reliance Capital Partners buys 3.4% stake in Fame India

Reliance Capital Partners, a part of the Anil Dhirubhai Ambani (ADA) Group, has bought a 3.4 per cent stake in multiplex operator Fame India over the last two days from the open market, according to stock exchange filings. The shares were purchased after Inox Leisure acquired a 43 per cent stake in Fame India from the promoters.

The group did not own shares in Fame India at the end of the December quarter.

Several brokers said there is possibility of a counter offer from the ADA Group. Another group firm, Reliance Media Works (earlier Adlabs Films), is also an operator of multiplexes in India. A group spokesman declined to comment on the issue.

Reliance Capital, an ADA Group company, also sold on Wednesday 310,000 shares of Inox Leisure, in which it held a 9.08 per cent stake at the end of December, 2009.

The Fame India stock has been on the rise for the last four days, gaining over 20 per cent. On Thursday, it closed at Rs 48.40, up 5 per cent, on the BSE. The Inox Leisure stock fell 12.7 per cent to Rs 74.80.

Reliance Cap net drops 52%

Reliance Capital, the financial services arm of the Reliance-Anil Dhirubhai Ambani (R-ADA) group, reported a 52 per cent fall in consolidated net profit at Rs 63 crore for the quarter ended December 31, 2009, against Rs 132 crore in the same quarter the previous financial year.

“Lower capital gains were booked this quarter, owing to the planned partial stake sale later this year in the operating businesses, subject to necessary approvals… The full benefit of this unlocking of value will form a part of Reliance Capital’s net profit for the current financial year,” the company said in a statement.

Reliance Capital Asset Management, the country’s largest fund house, saw its assets under management grow 71 per cent to Rs 1,19,982 crore as of December 31, 2009, compared with Rs 70,208 crore.

RCap recorded an 86 per cent rise in net profit to Rs 48 crore from Rs 26 crore at the end of the previous quarter.

Reliance Life Insurance saw a 40 per cent increase in total premium to Rs 1,603 crore, against Rs 1,148 crore a year ago. New business premium was at Rs 92 crore in the reporting quarter, against Rs 830 crore in the corresponding quarter a year ago — an increase of 11 per cent. The capital invested in this business till date is Rs 2,808 crore.

The general insurance arm reported a marginal 2 per cent increase in gross direct premium against Rs 509 crore in the December 2008 quarter.